In May 1995 when the exchange rate was 80 yen per dollar, Japan Life Insurance Company invested ¥800,000,000 in pure-discount U.S. bonds. The investment was liquidated one year later when the exchange rate was 110 yen per dollar. If the rate of return earned on this investment was 46% in terms of yen, calculate the dollar amount that the bonds were sold at.

Question

Quizplus · Accepted Answer

First, we need to calculate the return on investment in terms of dollars:

Return on Investment = (Ending Value - Beginning Value) / Beginning Value

Ending Value (in yen) = ¥800,000,000 + (¥800,000,000 * 46%) = ¥1,168,000,000

Beginning Value (in dollars) = ¥800,000,000 / 80 = $10,000,000

Ending Value (in dollars) = ¥1,168,000,000 / 110 = $10,618,181.82

Therefore, the bonds were sold at approximately $10,618,000, which is closest to option A.

In May 1995 When the Exchange Rate Was 80 Yen